Avoiding offerings & pump-and-dumps

Red flags that tell you to stay away — before you get trapped.

9 min · Intermediate

What you'll learn

Recognize the warning signs that a company is likely to sell shares into a spike
Identify the hallmarks of promotions and pump-and-dump schemes
Decide in advance when to pass on a stock entirely

Most catastrophic small-cap losses come from being in the wrong stock, not from a bad entry.
A spike in a cash-poor company with a shelf, ATM or cheap warrants is a classic offering setup.
Unsolicited promotion, no revenue and no real news are hallmarks of a pump-and-dump.
Passing is always an option, and it is often the best trade of the day.

Registered direct offering — A sale of new shares directly to investors, usually at a discount to the market price and often with warrants.
Pump-and-dump — A scheme in which promoters hype a stock to push its price up, then sell their shares to the buyers they attracted.
Going concern — Auditor or company language warning that the business may not have enough cash to keep operating.
Reverse split — Combining shares into fewer shares at a higher price, often to keep an exchange listing; it can shrink the float sharply.

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